A Firm Estimates That It Will Receive Cash Flows from a New

question 13

Multiple Choice

A firm estimates that it will receive cash flows from a new product of $1,000 in Year 1, $800 in Year 2, and $700 in Year 3. If a discount rate of 9% is assumed, into what range below will the NPV be?

• A) Less than $2500
• B) Between $2500 and $2800
• C) Between $2800 and $3100
• D) More than $3100

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Definitions:

Capital Account

An account showing the net worth of a business at a specific point, calculated as assets minus liabilities and preferred stock.

Revenues

The total income generated from normal business operations, often from the sale of goods and services.

Expenses

Expenses that a company incurs while generating income.

Real Account

a permanent account in the general ledger that tracks the value of a company's property, plant, equipment, and other non-current assets over time.